TOURIST RENT NON RESIDENT OWNER –  VAT or NOT? – BUSINESS ACTIVITY?

Tax implications on the tourist renting a property in Spain by a NON RESIDENT in Spain.

Purely, the rent of a property is not subjected to VAT. This VAT exemption includes any type of rent:

• Short term rent / Tourist rent
• Medium term rent
• Long term rent

The reason of this is because the Spanish system considers that there is not “business” or “commercial activity” when renting a property (even in terms of Tourist Rent)

But, when we say that the “tourist rent” is not subjected to VAT, we have to consider the following situations:

• Case 1.- Non permanent establishment. No business activity

The owner simply rents the property to guests using its own marketing tools, or using other external online platforms as AirBNB, Homeaway, etc.

Contact with guests is directly done by the owner (keys, guest reception, emergency, maintenance, etc.). Online platform only deals with the marketing side and publicity of the rent, booking and also to manage rent payments and collection.

Also, the owner rents the property in no “business” interest, in some periods of the year, reserving for himself a determinate time per year for private use.

The owner may contract local professional services for cleaning, gardening, maintenance, etc, but in “exclusive” activity for the rent and not as employees.

In these cases, the rent will not be subject to VAT.

• Case 2.- Non Permanent Establishment – No business activity

The same non resident owner, together with the rent, offers cleaning room service, cleaning of clothes, and even food/drinks.

In these cases, VAT would be in application is when the owner provides “hotel Services” to the guests. In these cases, the VAT in application will be the 10 % and the owner would need to produce separate invoices to guests for these services.

But, which are considered as “Hotel Services”?. Here we have to distinguish between:

• Cleaning and other services which are offered only BEFORE checking , and AFTER the checkout. These services will not be considered as “Hotel Services”, as they are provided to maintain the property in proper use conditions for guests.
• Daily cleaning of room, laundry services for clothes, and food (Breakfast, dinner, etc. ): In these cases, the service is classified as “Hotel Service”, so, VAT will be in application.

• Case 3.- Permanent Establishment – Business activity

The non resident owner decides to contract one or more employees in Spain to be at the house for cleaning, maintenance, customer service and reception, keys holding, etc.

In this case, due to the fact that the owner employes a person in permanent basis (social security, labour contract, or permanent professional contract) to specifically destiny his work to the rent, this will be considered as a “business activity”, so subjected to VAT.

In fact, for this reason the owner will be considered as “employer”, in a business activity, and this activity will be considered in Spain a “Permanent Establishment”, so subjected to tax and formal obligations as an non resident entity with Permanent Establishment” in Spain.

• Case 4.- Business activity

The same non resident owner, even non contracting an employee in permanent basis, decides to contract the services from a “Renting agent” or “Platform” to cede, contract, or subcontract the rent of the property during the whole or an important period of time during the year, for a determinate payment, compensation or other.

In this case, it is the Agent/Platform who directly deals with guests’ communications, check-in, check-out, maintenance, etc. The owner has not contact with final users/guests from the agent, and it is the platform who has the exclusive access and right if use/rent the property during the rental contracted period.

So, again, the Spanish system will consider that, although the owner has not “business” structure to develop the rent, the same agent/platform contracted has it. So, at the end, the “business” activity is developed, so, the owner will be considered in business, the rent will be considered  a business activity, and this activity will be considered in Spain a “Permanent Establishment”, so subjected to tax and formal obligations as an non resident entity with Permanent Establishment” in Spain.

Tax implications

• VAT 21 %
• Retentions  19 % 

So, in the both last cases with Permanent Establishment, which are the formal obligations to follow up by the owner? Following the art. 164 from the Ley 37/1992, the following ones:

1. Submit declarations relating to the beginning, modification and cessation of activities that determine their subjection to the tax. We call this “registro Censal” as passive subject from the VAT tax.
2. Request the tax identification number from the Administration and communicate it and accredit it in the cases established.
3. Issue and deliver an invoice for all its operations, adjusted to what is determined by regulation.
4. Keep accounting and records established in the manner defined by regulations, without prejudice to the provisions of the Commercial Code and other accounting standards.
5. Present periodically or at the request of the Administration, information related to its economic operations with third parties. Quaterly Model 303 (VAT), and Model 115 (Retentions)
6. Submit the corresponding declarations-settlements and enter the amount of the resulting tax.
7. An annual summary declaration.